Pedro owns 5 rental properties. He contracts with East Lake Properties, Inc., to manage the real estate. East Lake obtains tenants, negotiates leases, makes necessary repairs, pays expenses related to the properties, and remits monthly net receipts to Pedro.
I.Pedro's sale of the properties at a gain will result in a capital gain.
II.Pedro's sale of the properties at a loss results in an ordinary loss on his tax return.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Pedro owns 5 rental properties. He contracts with East Lake Properties, Inc., to manage the real estate. East Lake obtains tenants, negotiates leases, makes necessary repairs, pays expenses related to the properties, and remits monthly net receipts to Pedro.
I.Pedro's sale of the properties at a gain will result in a capital gain.
II.Pedro's sale of the properties at a loss results in an ordinary loss on his tax return.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Statement I is correct because the sale of rental properties is generally considered a capital asset and any gain or loss from the sale is classified as a capital gain or loss. Statement II is incorrect because a loss from the sale of rental property is considered a capital loss, not an ordinary loss.

Pedro Owns 5 Rental Properties